Short-Term Rentals and the Housing Market

In cities like San Francisco, the cost of a home or an apartment is never far from anyone’s mind and there is no shortage of theories about why rents continue to rise. One of the latest theories posits that the “sharing economy” and short-term rentals are to blame for high rents. But not only is there no evidence to suggest that short-term rentals are making homes less affordable, our research and analysis indicate that home sharing has the potential to make urban housing more affordable for more families.

We know the sharing economy is here to stay. Whether renting someone else’s personal car, being driven around by a friendly stranger, hiring a freelance employee, or spending the night in someone’s guest room, there is no doubt that technology and social media are driving transparency and growth in what has been a smaller but longstanding sector of the economy. With short-term housing rentals, it is time for residents and homeowners to find ways to work with neighbors who choose to offer spare rooms, couches, and unused living spaces to visitors.

The idea of offering spare rooms for rent is not a new one: formal and informal arrangements have existed for years. Informal arrangements can include inviting a friend or relative to stay in an extra room or sleep on a couch. We have all done this and “payment” can be made by buying dinner, helping around the house, or simply expressing gratitude. Formal arrangements such as boarding houses were very common in years past. Primarily consisting of bulletin board postings or newspaper classified ads in years past, advertising has since shifted to online platforms and social media. Renting out a spare bedroom is not a new idea, but technology advancements now allow for more efficient searches and connections.

A common misperception of short-term rentals is that they raise apartment rents in neighborhoods across the city. Rosen Consulting Group undertook a study to determine whether short-term rentals are behind the surge in apartment rents in San Francisco. Rents are rising, but short-term rentals are not the culprit. Our study found that economic and demographic factors are the primary drivers of the local apartment market. The fact is, the city of San Francisco is a high-cost housing market and development of new homes is very limited. In fact, steady job creation across a variety of industries and a large wave of younger adults who primarily rent are behind the surge in apartment rents. In San Francisco alone, approximately 25,000 new jobs have been created since 2009 and the unemployment rate is one of the lowest in the state, causing many more households to rent apartments in the city. While San Francisco still has a long way to go to reach full employment, the pace of hiring is creating more demand and competition for apartments. And despite the large number of housing units under construction, there has been little development in the past five years so housing demand is outpacing new supply. When more jobs and people are added to the city, the cost of housing increases.

The number of San Francisco residents offering rooms for rent is very limited, even though the sharing economy has expanded rapidly in recent years. At any given time, there are a couple of thousand short-term rentals available. But, there are 378,000 apartments, condominiums, and houses in San Francisco. The truth is that short-term rentals occur in a very small number of homes in the city. And such a small number of short-term rentals cannot have a measurable impact on housing costs or renter demand.

There is a chronic shortage of housing in San Francisco that leads to a high cost of living for all. Allowing residents to supplement their income by offering a spare bedroom helps households to remain in the city as the cost of living increases. The amount of income from a rental alone is not generally sufficient to live on, but it can go a long way in providing supplemental income for a family. To be sure, there are isolated cases of individuals who live on the income generated from renting out spare rooms, but the cost and effort involved in operating a full-time rental outweigh the benefit for the vast majority of households.

The local economy benefits from travelers who spend time and money in the city’s neighborhoods. Short-term rentals can give visitors a more personal experience with San Francisco and its residents, offering an inside look at the city’s lifestyle.

San Francisco is a leader in technology, and residents should reinforce the city’s tradition of innovation and creative thinking by finding ways to foster development of the sharing economy.

Kenneth Rosen is the chair at the Fisher Center for Real Estate and Urban Economics at University of California, Berkeley.